Goldman Sachs downgrades Glencore, upgrades Kaz Minerals

GS said that following a disappointing start to the year, activity in China seems to have bottomed out, as evidenced by soft data.

"Our economists expect March data to be ahead of consensus, and this should be taken positively by commodities/mining equities," it said. "While a more stable growth environment could see policymakers adopting a more neutral stance, our economists highlight the following: the growth rebound has been a function of policy, and a withdrawal of the loosening stance could see a double dip, something they are likely to seek to avoid."

Goldman downgraded Glencore to 'neutral' from 'buy' and cut the price target to 320p from 340p following the stock's recent rally. It noted that the shares have risen 13% year-to-date, mainly thanks to higher commodity prices and improved sentiment towards miners in general. Nevertheless, the stock has continued to lag the broad mining index, which rose 24% over the same period.

GS highlighted an absence of catalysts for the stock.

"Many investors with whom we have spoken are unwilling to take/build exposure to Glencore while the Department of Justice investigation continues and with no final date set. While the company is continuing with its buyback programme, we believe that this provides downside protection, rather than a tailwind for the stock."

In addition, it noted that coal, which contributes around 25% of the company’s EBITDA, is facing headwinds from improved supply and tepid demand in Europe and in Asia.

"Over the near term, thermal is likely to face downside price pressure, in our view, which would likely lead to consensus earnings downgrades," it said.

On the upside, the bank lifted its stance on Kaz Minerals to 'buy' from 'neutral' and hiked the price target to 800p from 600p following completion of its acquisition of the Baimskaya copper project.

It said that while its upgrade on that basis might seem counter-intuitive, insofar as many uncertainties remain in relation to the project, these are outweighed by the valuation benefits. On GS's estimates, the mine has a net asset value of $1.4bn, equating to 200p a share.

Goldman added buy-rated Anglo American to its 'Conviction List' and lifted its price target to 2,700p from 2,250p.

"Our commodities team’s recent upgrade of its iron ore forecast, coupled with the issues affecting Vale’s high-quality iron ore supply, lead us to expect the premium Kumba’s Iron Ore receives for its product to remain strong," it said.

At 1100 BST, Glencore shares were down 2.1% at 324.70p, Kaz Minerals was up 0.5% at 725.20p and Anglo was down 1.1% at 2,202.50p.